Question 1

By identifying variances from the financial plan, managers are able to focus on those departments that require corrective action.

Accepted Answer

A) True 
 B)False

Question 2

Willow's small floral shop specializes in weddings. Though she knows her competitors allow customers to buy on credit, she is concerned about the risk and expense of unpaid customer accounts. One strategy to reduce risk and collect sales revenue more quickly would be to accept bank-issued credit cards.

Accepted Answer

A) True 
 B)False

Question 3

The most widely used source of short-term funding is trade credit.

Accepted Answer

A) True 
 B)False

Question 4

Corporations that issue stock to raise long-term funds accept the legal obligation to repay the amount borrowed.

Accepted Answer

A) True 
 B)False

Question 5

By purchasing stock in Film Files, Mackenzie has become a(n) ________ the company.

Accepted Answer

A)  creditor of 
B)  owner of 
C)  general partner of 
D)  venture capitalist in 
A)  creditor of 
B)  owner of 
C)  general partner of 
D)  venture capitalist in

Question 6

Mort Tishian feels it's necessary to predict revenues, costs, and expenses on a six-month basis. "It's the only way you get an idea of what to expect," explains Mort. In order to obtain these predictions, Mort needs to develop a(n)

Accepted Answer

A)  cash-basis accounting system. 
B)  short-term forecast. 
C)  capital budget. 
D)  econometric model. 
A)  cash-basis accounting system. 
B)  short-term forecast. 
C)  capital budget. 
D)  econometric model.

Question 7

Many sellers offer a 2% discount to a buyer that makes payment 20 days before the due date, (2/10, net 30). Firms that fail to take advantage of this early payment discount are giving up approximately 36%.

Accepted Answer

A) True 
 B)False

Question 8

When Portable Pet Care, a mobile veterinary company, first started operations, it extended three months of credit to customers. It soon began to experience a cash flow problem. A finance professional was hired to

Accepted Answer

A)  manage accounts receivable. 
B)  manage accounts payable. 
C)  develop tax strategies. 
D)  audit the company ledgers. 
A)  manage accounts receivable. 
B)  manage accounts payable. 
C)  develop tax strategies. 
D)  audit the company ledgers.

Question 9

To be effective, budgets are prepared independently of organizational forecasts.

Accepted Answer

A) True 
 B)False

Question 10

If a company secures a one-year bank loan this is considered

Accepted Answer

A)  short-term financing. 
B)  asset funding. 
C)  liability funding. 
D)  long-term financing. 
A)  short-term financing. 
B)  asset funding. 
C)  liability funding. 
D)  long-term financing.

Question 11

Successful use of financial leverage requires a firm to

Accepted Answer

A)  negotiate with lenders to establish a line of credit. 
B)  establish and operate a venture capital organization to minimize the use of equity financing. 
C)  register with the local government commission that administers market leverage. 
D)  earn a higher return on its investments than the interest rate it pays to acquire funds. 
A)  negotiate with lenders to establish a line of credit. 
B)  establish and operate a venture capital organization to minimize the use of equity financing. 
C)  register with the local government commission that administers market leverage. 
D)  earn a higher return on its investments than the interest rate it pays to acquire funds.

Question 12

If a firm earns 10% return on funds they borrowed at 15% interest, the owners of the firm realize a benefit from using leverage.

Accepted Answer

A) True 
 B)False

Question 13

A debenture bond is backed only by the reputation of the issuer.

Accepted Answer

A) True 
 B)False

Question 14

Portable Pet Care, Inc., a mobile veterinary clinic, is planning for the future. The company owners (two seasoned veterinarians) have brought together the vice president of marketing and the director of information systems to talk about their expansion campaign, "We come to you!" The talks are in the preliminary stages, so there is no need to concern the finance team at this time because cash flow is currently not a problem.

Accepted Answer

A) True 
 B)False

Question 15

Leverage refers to the use of borrowed funds to increase a firm's rate of return.

Accepted Answer

A) True 
 B)False

Question 16

Undercapitalization refers to the problem of

Accepted Answer

A)  insufficient start-up funds. 
B)  inadequate control of expenses. 
C)  inappropriate cash flows. 
D)  undervalued capital stock. 
A)  insufficient start-up funds. 
B)  inadequate control of expenses. 
C)  inappropriate cash flows. 
D)  undervalued capital stock.

Question 17

A promissory note that requires the borrower to repay the loan in specified installments is called a(n)

Accepted Answer

A)  repayment scheduling. 
B)  term loan agreement. 
C)  amortization installment. 
D)  revolving line of credit. 
A)  repayment scheduling. 
B)  term loan agreement. 
C)  amortization installment. 
D)  revolving line of credit.

Question 18

Seedling Plant Science invented a drought resistant grass seed that only needs watering three times each year. In order to expand distribution worldwide, the company whose product produces lush green foliage needs a large amount of funding-fast! The handful of seed scientists that own the company decide to offer shares of stock to general investors. This first-time offering is a(n)

Accepted Answer

A)  Stock Equity Commission (SE
C) . 
B)  Stock Fund Offering (SFO). 
C)  Broad-Based Offering (BBO). 
D)  Initial Public Offering (IPO). 
A)  Stock Equity Commission (SE
C) . 
B)  Stock Fund Offering (SFO). 
C)  Broad-Based Offering (BBO). 
D)  Initial Public Offering (IPO).

Question 19

Finance managers need funds for capital purchases, but seldom for the day-to-day operations.

Accepted Answer

A) True 
 B)False

Question 20

Inadequate control of expenses represents a common financial problem that contributes to business failure.

Accepted Answer

A) True 
 B)False

Exam 18: Financial Management

By identifying variances from the financial plan, managers are able to focus on those departments that require corrective action.

The most widely used source of short-term funding is trade credit.

Corporations that issue stock to raise long-term funds accept the legal obligation to repay the amount borrowed.

By purchasing stock in Film Files, Mackenzie has become a(n) ________ the company.

Mort Tishian feels it's necessary to predict revenues, costs, and expenses on a six-month basis. "It's the only way you get an idea of what to expect," explains Mort. In order to obtain these predictions, Mort needs to develop a(n)

Many sellers offer a 2% discount to a buyer that makes payment 20 days before the due date, (2/10, net 30). Firms that fail to take advantage of this early payment discount are giving up approximately 36%.

When Portable Pet Care, a mobile veterinary company, first started operations, it extended three months of credit to customers. It soon began to experience a cash flow problem. A finance professional was hired to

To be effective, budgets are prepared independently of organizational forecasts.

If a company secures a one-year bank loan this is considered

Successful use of financial leverage requires a firm to

If a firm earns 10% return on funds they borrowed at 15% interest, the owners of the firm realize a benefit from using leverage.

A debenture bond is backed only by the reputation of the issuer.

Leverage refers to the use of borrowed funds to increase a firm's rate of return.

Undercapitalization refers to the problem of

A promissory note that requires the borrower to repay the loan in specified installments is called a(n)

Finance managers need funds for capital purchases, but seldom for the day-to-day operations.

Inadequate control of expenses represents a common financial problem that contributes to business failure.

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding Economics and How It Affects Business

Doing Business in Global Markets

Demanding Ethical and Socially Responsible Behavior

How to Form a Business

Entrepreneurship and Starting a Small Business

Management and Leadership

Structuring Organizations for Todays Challenges

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Employeemanagement Issues

Marketing: Helping Buyers Buy

Developing and Pricing Goods and Services

Distributing Products

Using Effective Promotions

Understanding Accounting and Financial Information

Using Securities Markets for Financing and Investing Opportunities

Money, Financial Institutions, and the Federal Reserve

Appendix: Working Within the Legal Environment

Appendix: Using Technology to Manage Information

Appendix: Managing Risk

Appendix: Managing Personal Finances

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